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Trade liberalization, product variety and growth in a small open economy: a quantitative assessment

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  • Rutherford, Thomas F.
  • Tarr, David G.

Abstract

We develop a numerical growth model that quantifies the welfare effects of trade liberalization. Additional intermediate input varieties provide the engine of growth and dramatically magnify the welfare gains from trade liberalization. In our central model, a 10% tariff cut leads to a 10.6% estimated gain in Hicksian EV. Systematic sensitivity analysis shows that there is virtually no chance of a welfare increase less than 3%, but a 6.6% chance of a welfare gain greater than 18%. We show that complementary reforms are crucial to fully realize the potential gains from the trade reform.
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  • Rutherford, Thomas F. & Tarr, David G., 2002. "Trade liberalization, product variety and growth in a small open economy: a quantitative assessment," Journal of International Economics, Elsevier, vol. 56(2), pages 247-272, March.
  • Handle: RePEc:eee:inecon:v:56:y:2002:i:2:p:247-272
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    1. Glenn W. Harrison & Thomas F. Rutherford & David G. Tarr, 2014. "Trade Reform in the Partially Liberalized Economy of Turkey," World Scientific Book Chapters,in: APPLIED TRADE POLICY MODELING IN 16 COUNTRIES Insights and Impacts from World Bank CGE Based Projects, chapter 5, pages 95-121 World Scientific Publishing Co. Pte. Ltd..
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    3. Jaime de Melo & David Tarr, 2015. "Welfare Costs Of U.S. Quotas In Textiles, Steel And Autos," World Scientific Book Chapters,in: Modeling Developing Countries' Policies in General Equilibrium, chapter 21, pages 451-459 World Scientific Publishing Co. Pte. Ltd..
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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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